Company Car Tax in 2007/2008
Company Car Tax and you
Substantial rises in Vehicle Excise Duty for high-emitting cars, longer-term VED projections and a freeze on the company car tax lower threshold for qualifying cars in 2009/10 were among the announcements in Budget 2007.
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Key facts from Budget 2007
Existing emissions-based company car tax rules unchanged for 2007/8. ● Minimum carbon dioxide emissions threshold frozen at the 2008/9 level of 135g/km for 2009/10. ● Vehicle Excise Duty for petrol and diesel cars in Band G rises to £300 in 2007/8, and to £400 in 2008/9.
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Nominal £5 VED rise for cars in Bands C-E in each of the next three years; Band F rate to rise by £10 in 2007/8, and £5 in each of the following two years. Band B rate reduces by between £5-£15 in 2007/8. ● Government set charge of £14,400 for fuel benefit charge calculations maintained for 2007/8.
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Extension of the 20p/litre biofuel duty incentive until 2009/10 and extension of the 40p/litre duty incentive on biogas road fuels until 2011/12. ● 2% company car discount for drivers of cars using E85 high-blend bioethanol fuels from April 2008. ● Fuel duty rise of 2p/litre deferred until October 1.
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Company Car Tax in 2007/2008
Vehicle Excise Duty (VED)
Budget 2007 applied increased rates for Bands C-G, and reduced rates for cars in Band B. Petrol and diesel rates are unified and apply from March 22, 2007. For the most polluting cars in Band G, the rate rises to £300 in 2007/8, and £400 in £2008/9. For cars in Band B, rates for petrol and diesel cars are reduced to £35, with rates for cars running on ‘alternative’ fuels reduced to £15, with that rate then frozen for the next two years. Rates for all cars in Bands C-E, cars registered before 2001 and all LCVs will rise by £5 per year in each of the next three years, while the rate for cars in Band F will rise by £10 in 2007/8, and by £5 in each of the subsequent two years.
Company car tax in 2007/8
Budget 2007 confirmed that the threshold for the minimum percentage charge rate for calculating Company Car Tax remains at 140g/km for 2007/8. In 2008/9, the lower threshold reduces to 135g/km for qualifying cars and is frozen at this level for 2009/10. 2008/9 also introduces a new 10% tax band for company cars with CO2 emissions of 120g/km or less. The chart (right) shows taxable percentages of P11D price applicable for 2007/8 and beyond (including the 10% rate).
Taxable percentages of P11D value
% of P11D price to be taxed 10* 15* 16* 17* 18* 19* 20* 21* 22* 23* 24* 25* 26* 27* 28* 29* 30* 31* 32* 33** 34*** 35**** CO2 (g/km) 2007/8 – 140 145 150 155 160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235 240 CO2 (g/km) 2008/9 120 135 140 145 150 155 160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235 CO2 (g/km) 2009/10 120 135 140 145 150 155 160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235
VED Bands and rates in 2007/8: cars
VED band A B C D E F G* CO2 Alternative emissions fuel cars Up to 100g/km £0 101 – 120g/km £15 121 – 150g/km £95 151 – 165g/km £120 166 – 185g/km £145 Over 185g/km £190 Over 225g/km £285 Petrol cars £0 £35 £115 £140 £165 £205 £300 Diesel cars £0 £35 £115 £140 £165 £205 £300
Add 3% for diesel. ** Add 2% for diesel. *** Add 1% for diesel. **** Max charge, so no supplement
Annual VED payable from March 22, 2007. *Applies to new cars registered from March 23, 2006
Calculation of employers’ Class 1A National Insurance Contributions
For 2007/8 the percentage for the calculation of employers’ Class 1A National Insurance Contributions (NICs) on company cars remains as for 2006/7 at 12.8% of taxable value. To calculate the annual Class 1A NICs due, you need to know the car’s taxable value, derived from multiplying the P11D price by the relevant BIK tax percentage (see chart above right). This is then multiplied by 12.8% to give the annual tax due.
Company car tax: calculating your Benefit in Kind liability in 2006/7
As in 2006/7, the method of calculating your company car tax bill in 2007/8 depends on the car’s P11D price and CO2 emissions, and whether or not it is a diesel. Emissions figures and environmental compliance status can be obtained from manufacturer information or the Vehicle Certification Agency at www.vcacarfueldata.org. uk/search. All diesel cars registered on or after January 1, 2006, are liable to a 3% charge on account of diesel’s higher emissions of ‘local’ pollutants. In 2007/8 a new Audi A3 Sportback 2.0 TDI SE (above), for example, with a P11D price of £20,667 and CO2 emissions of 146g/km, will attract a tax charge of 19% of its P11D value. Thus £20,667 x 19% gives a taxable value of £3,927, equating to a yearly tax bill of £864 (£72 per month) for a 22% tax payer or £1,571 (£131 per month) for a 40% tax payer.
Company car tax liabilities: Audi A4 2.0 TDI SE and rivals
Audi A4 2.0 TDI SE P11D price £22,552 CO2 emissions (g/km) 159 Taxable value £4,736 (2007/8) (21%) BIK tax (2007/8) £1,042/£1,894
All models four-door. Source: manufacturer data
Model
BMW Mercedes-Benz 320d SE C200 CDI Elegance SE £25,092 £24,847 153 160 £4,962 £4,969 (20%) (22%) £1,104/£2,007 £1,093/£1,988
Biofuels
Budget 2007 announced the extension of the 20p/litre biofuel duty incentive until 2009/10, and the extension of the 40p/litre duty incentive on biogas road fuels until 2011/12. The Budget also announced a 2% company car tax discount for drivers of vehicles using E85 high-blend biothanol fuels from April 2008.
‘Free’ fuel: 2007/8 emissions-based charge
For example, a petrol car has CO2 emissions of 140g/km. Percentage used to calculate the company car fuel tax charge for 2007/8 is 15%. Using the Government’s set figure of £14,400 for 2007/8, the fuel scale charge is calculated as follows: £14,400 x 15% = £2,160. Therefore, a 22% tax payer will pay £2,160 x 22% = £475; a 40% tax payer will pay £2,160 x 40% = £864.
Company Car Tax in 2007/2008
Employer-provided ‘free’ fuel for private mileage: benefit or liability?
For 2007/8, the Government set figure for calculating the tax due on employer-provided fuel for private use in a company car fuel is frozen at £14,400. To calculate the tax, you need to know: l The car’s combined consumption and BIK tax percentage l The price of fuel used l The driver’s marginal tax rate and Government set figure For example, the Audi A4 Avant 2.0 TFSI S line Special Edition 5dr (pictured below), with CO2 emissions of 186g/km, has a taxable percentage of 24% in the 2007/8 tax year. Therefore, the fuel scale charge is £14,400 x 24% = £3,456. For a 22% tax payer accepting employer-provided ‘free’ fuel for private use, the annual tax liability will be £3,456 x 22% = £760; for a 40% tax payer the liability is £3,456 x 40% = £1,382. £760 would buy 190 gallons of unleaded, assuming a price of £3.99/gallon (87.7p/litre), or 346 gallons for a 40% tax payer. With the A4’s combined consumption of 36.2mpg, a 22% tax payer would need to cover 6,878 private miles a year to break even on the tax charge (or 12,525 miles for a 40% tax payer). If the number of private miles you cover is less than the calculated figure, consider paying for private fuel yourself as it may cost less than the tax you pay. If your private mileage exceeds the calculated figure, you may be better off paying the tax.
Business mileage in a private car: reimbursement rates in 2007/8
The 2007/8 Tax and National Insurance-exempted amounts claimable under the HM Revenue & Customs Authorised Mileage Allowance Payments (AMAPs) for business mileage in a private car remain the same as for 2006/7 (see below). If your employer reimburses you at a lower rate than the AMAP rates, you are entitled to claim tax relief on the difference. Conversely, reimbursements made at a higher level than the AMAPs will incur tax. Budget 2006 stated that HM Revenue & Customs will review taxation of employee car ownership schemes (ECOS), including AMAP rates, with a view to possible changes. However, an announcement on this has been deferred until later in 2007.
Calculating your tax code
Taking the Audi A4 2.0 TDI SE as an example, this model has a P11D price of £22,552 and CO2 emissions of 159g/km, giving a sliding scale tax percentage of 21% in 2007/8. The taxable value is therefore £22,552 x 21% = £4,736. In this case, this is the value that should appear as the taxfree amount for company car benefit on your HM Revenue & Customs PAYE Coding Notice. It is subtracted from your allowances to calculate your tax code. Usually, the amount is accompanied by an explanatory note on the reverse of the document which explains how the coding has been derived: you can check this against your own calculation using the guidance above. It equates to actual annual BIK tax payable in 2007/8 of £1,042 (22% tax payer), or £1,894 for a 40% tax payer.
Authorised Mileage Allowance Payments (AMAP) rates 2007/8
All cars Up to 10,000 miles 40p Over 10,000 miles 25p
Checking your company car tax liability in 2006/7
The emissions-based company car tax may give rise to inaccuracies in the Pay As You Earn (PAYE) tax codes allocated to company car drivers, particularly with respect to diesel models registered after January 1, 2006, which are subject to a 3% extra charge. It means some drivers may receive incorrect BIK tax bills for 2007/8. Mistakes on your Inland Revenue PAYE Coding Notice could mean you will pay the wrong tax – either too much or too little – under the 2007/8 company car tax rules. Pay too much and you could be entitled to a rebate at a later date; pay too little and you may receive a tax demand at a later date. Simple checks of your PAYE Coding Notice will help you ensure you pay the right company car tax.
What you should do if your PAYE coding notice is wrong
Look at the example above. If you think the value entered on your PAYE Coding Notice is wrong, you should call your tax office on the number shown at the top of the Coding Notice. Explain why you think it is wrong, giving the correct P11D price and CO2 details for your car if needed. You will need to supply: l The P11D price at first registration. l The car’s CO2 emissions. l If the car in question is a diesel.
Calculating your break-even mileage for employer-provided ‘free’ fuel
Example: Audi A4 Avant 2.0 TFSI S line Special Edition with combined fuel consumption of 36.2mpg and CO2 emissions of 186g/km. Government set figure for 2006/7 = £14,400. ● Tax percentage is 24%, so fuel scale charge for 2006/7 is £14,400 x 24% = £3,456, equating to £760 tax liability for a 22% tax payer (or £1,382 for a 40% tax payer). ● £760 will pay for 190 gallons of unleaded (or 346 gallons for a 40% tax payer), assuming the national average price of £3.99/gallon or 87.7p/litre. ● Break-even mileage is 190 x 36.2 = 6,878 private miles (or 12,525 private miles for a 40% tax payer).
Official fuel consumption for the Audi models featured in mpg (litres/100km). A3/A3 Sportback: urban 19.2-42.8 (14.7-6.6); extra urban 34.9-67.3 (8.1-4.2); combined 26.9-55.4 (10.5-5.1). CO2 : 135-250g/km. A4/A4 Avant: urban 14.4-36.2 (19.6-7.8); extra urban 28.8-62.8 (9.8-4.5); combined 21.1-49.6 (13.4-5.7). CO2 : 152-322g/km. The explanations and data set out in this leaflet are for general information only, and though given in good faith, are given without any warranty as to their accuracy. Please refer to your legal or tax adviser for individual professional advice.